Adaptation, Internalization and Environmental Damage
AbstractExisting literature ignores adaptation responses to external effects which, in turn, affect the design of appropriate internalization instruments. We use general equilibrium numerical simulation models based on OECD and UK data to analyze the significance of these responses to congestion externalities, and argue that they need to be taken into account in designing internalization instruments. We consider labor-leisure, regional labor mobility and house price responses to congestion externalities. Results show that not taking adaptation responses to environmental damage into account can seriously mislead analyzes of the consequences of internalizing externalities. If adaptation is present, externalities will be partially internalized, the gains from internalization will be smaller, and a simple internalization tax calculated as if adaptation were not present will typically overcorrect for the externality.
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Bibliographic InfoPaper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 20022.
Date of creation: May 2002
Date of revision:
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Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html
Adaptation; Externalities; Congestion; Internalization; Migration;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-02 (All new papers)
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- Raghbendra Jha & John Whalley, 2003.
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2003-07, The Australian National University, Arndt-Corden Department of Economics.
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